2. WHAT IS TAX?
A compulsory contribution to state revenue,
levied by the government on workers income and
business profits or added to the cost of some
goods, services, and transactions.
"No tax shall be levied or collected except by the
authority of law."
3. TAX SYSYEM IN INDIA
The system of taxation is divided between the
central and state government in India.
Central govt. - income tax,property tax, etc.
State govt. - custom duties , excise duty, service
tax, VAT (Value Added Tax), land revenue ,etc.
Direct tax - tax paid directly to the government
by the persons on whom it is imposed.
Indirect tax – taxes paid to the government
through intermediary.
4. CONSTITUTIONAL PROVISIONS ON
CENTRE-STATE FISCAL BALANCE
DIRECT TAX
INDIRECT TAX
Income tax – Tax levied on personal income from any source
except agriculture.
Sales Tax/VAT - Tax on sales or on the receipts from sales.
Excise Duty - Tax levied on goods produced and consumed
within the country.
Custom Duty - Tax levied on goods imported to or exported
from the country.
Service Tax – Tax levied on specified services that comes
under its ambit . It is levied on services provided in India
except the state of J&K
6. DIRECT TAX CODE
The DTC is about to replace the existing Indian
Income Tax Act, 1961.
The Code aims at reducing tax rates, but
expanding the tax base by minimizing
exemptions.
It is proposed to provide the EEE (Exempt-
Exempt-Exempt) method of taxation for
Government Provident Fund (GPF) and Public
Provident Fund (PPF).
7. DTC 2009 unveiled in August 2009
The Government received over 1,600 representations on
DTC 2009
DTC 2010 tabled in the Lok Sabha on 30 August 2010
The DTC 2010 will be effective from FY commencing 1
April 2013
“319 Sections and 22 Schedules in DTC as compared to
298 Sections and 14 Schedules in the ITA”
8. WHAT IS THE NEED FOR DTC?
To establish an economically efficient, effective
and equitable direct tax system
To eliminate distortions in the tax structure.
To reduce the scope for disputes and minimize
litigation related to variable tax rates.
At present, the rates of taxes are stipulated in
the Finance Act of the relevant year thus a
certain degree of uncertainty and instability in
the prevailing rates of taxes.
9. SALIENT FEATURES OF DTC
Single code for direct taxes
Use of simple language.
Flexibility to changing economy.
Surcharge and education cess are abolished.
Under the Code, all rates of taxes are proposed to be
prescribed in the First to the Fourth Schedule to the
Code itself thereby obviating the need for an annual
Finance Bill. The changes in the rates, if any, will be
done through amendments in the bill
10. Only half of Short-term capital gains will be taxed.
Tax exemption on LTA (leave travel allowance) is abolished.
Removal of most of the tax saving scheme:
DTC removes most of the categories of exempted income. Unit
linked Insurance Plans, Equity Mutual Funds , Long term
infrastructures bonds, house loan principal repayment, stamp
duty and registration fees on purchase of house property will
loose tax benefits.
PROVISIONS OF DTC
11. The income tax rates and slabs have been modified. The
proposed rates and slabs are as follows:
Annual Income Tax Slab
Up-to INR 200,000 (for
senior citizens 250,000)
Nil
Between INR 200,000 to
500,000
10%
Between INR 500,000 to
1,000,000
20%
Above INR 1,000,000 30%
Men and women are treated same now.
Home loan interest: Exemption will remain same as 1.5 lakhs per
year for interest on housing loan for self-occupied property.
News for NRIs : As per the current laws, a NRI is liable to pay tax on
global income if he is in India for a period more than 182 days in a
financial year. But in new bill, this duration has been changed to just
60 days.
SLAB RATES UNDER DTC
12. DIRECT TAX CODE INCOME TAX ACT
Common threshold income tax
exemption limit for men and women
proposed at Rs. 2 lakh per annum
Common threshold income tax exemption
limit for men and women proposed at Rs.
1.8 lakh per annum.
Tax exemption for senior citizens to Rs.
2.5 lakh.
Tax exemption for senior citizens to Rs. 2.5
lakh
Max limit for medical reimbursements
is Rs. 50,000 per year.
Max limit for medical reimbursements is
Rs. 15,000 per year
For incomes arising of House Property:
Deductions for Rent and Maintenance
would be 20% of the Gross Rent
For incomes arising of House Property:
Deductions for Rent and Maintenance
would be 30% of the Gross Rent.
13. POSSIBLE BREAKTHROUGH
Parliamentary Standing Committee on Finance held
on 24 Feb 2012 will recommend raising the annual
income-tax exemption limit to Rs.3 lakh and
hiking the limit on tax breaks for investments to
Rs.2.50 lakh
The Committee will present its report to Parliament in
the third week of March
14. HOW DTC WILL AFFECT VARIOUS
SECTORS ?
Effect on Endowment/Moneyback insurance
policies:
As per Direct tax code, any amount you receive at maturity
from an insurance policy (including bonus) will be taxed
while under ITA act no such provision is there.
RESIDENCY:
If the POEM(place of effective management) of a foreign
company is located in India at any time during the financial
year, it is regarded as a resident and its entire income is liable
to tax which was not under ITA act.
15. Effect on Mutual Funds & Stocks
DTC does not differentiate between short-term and long- term
capital gain.
Will the DTC help the insurance industry?
DTC is very unfair to the insurance sector as it proposes a
separate window of Rs50,000 apart from Rs1 lakh,
which will include payment made towards educational
expenses and health insurance, which leaves nothing for
the life insurance space.
CORPORATIONS AND WORKING CLASS:
Increase in the income-tax threshold for exemption and
no additional levy of surcharge and education cess.
17. Finance Minister Pranab Mukherjee while presenting
the Budget on July 6, 2009, said that GST would come
into effect from April 2010.
Till now, the date of implementation has been pushed
beyond from 01/04/2011 to may be 1st April 2013.
The implementation of GST will lead to the abolition of
other taxes such as octroi, Central Sales Tax, State-level
sales tax, entry tax, stamp duty, telecom licence fees,
turnover tax, tax on consumption or sale of electricity,
taxes on transportation of goods and services, etc., thus
avoiding multiple layers of taxation that currently exist in
India.
GOODS AND SERVICE TAX
18. Goods and Service Tax is a tax on goods and
services, which is leviable at each point of sale
or provision of service, in which at the time of
sale of goods or providing the services the seller
or service provider can claim the input credit
of tax which he has paid while purchasing the
goods or procuring the service.
WHAT IS GST ?
19. It is essentially a tax only on value addition at
each stage, and a supplier at each stage is
permitted to set-off, through a tax credit
mechanism.
The final consumer will thus bear only the GST
charged by the last dealer in the supply chain,
with set-off benefits at all the previous stages.
20. Stage of
supply chain
Purchase
value of
input
Value
addition
Value at
which
supply of
goods
and
services
made to
next
stage
Rate
of
GST
GST on
output
Input
tax
credit
Net GST=GST
on output –
Input tax
credit
Manufacturer 100 30 130 10% 13 10 13-10=3
Whole seller 130 20 150 10% 15 13 15-13=2
Retailer 150 10 160 10% 16 15 16-15=1
The manufacturer, whole seller and retailer have to pay only Rs. 6 (= Rs.
3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain
from the producer to the retailer, after setting-off GST paid at the earlier
stages. The overall burden of GST on the goods is thus much less.
ILLUSTRATION
21. In principle, there is no difference between present
tax structure under VAT and GST as far as the tax on
goods is concerned because GST is also a form of VAT
on Goods and services. Here at present the sales tax,
with an exception of CST, is a VAT system and in case
of service tax the system also has the Cenvat credit
system hence both sales tax and service tax are under
VAT system in our country. At present the goods and
services are taxed separately but in GST the
difference will be vanished.
GST AND PRESENT SYSTEM OF VAT
22. The incidence of tax only falls on domestic
consumption.
The efficiency and equity of the system is
optimized.
There should be no export of taxes across taxing
jurisdictions.
The Indian market should be integrated into a
single common market.
It enhances the cause of co-operative federalism.
OBJECTIVE BEHIND GST
23. A Joint Working Group has been constituted
(September 30, 2009) comprising of the officials
of the Central and State Governments.
It has to prepare in a time-bound manner a draft
legislation for Constitutional Amendment.
It has to prepare rules and procedures for CGST
and SGST.
The Working Group will also address to the issues
of dispute resolution and advance ruling.
STEPS TAKEN FOR GST
24. India is planning to implement a dual GST system.
Under dual GST, a Central Goods and Services Tax (CGST)
and a State Goods and Services Tax (SGST) will be levied on
the taxable value of a transaction.
All goods and services, barring a few exceptions, will be
brought into the GST base.
There will be no distinction between goods and services.
CGST will include central excise duty (Cenvat), service tax,
and additional duties of customs at the central level
SGST will include value-added tax, central sales tax,
entertainment tax, luxury tax, octroi, lottery taxes, electricity
duty, state surcharges related to supply of goods and
services and purchase tax.
PROPOSAL
25. Central and State GST should be treated
separately.
The CGST and SGST should be credited to the
accounts of the centre and the states separately.
Taxes paid against the CGST should be allowed to
be taken as input tax credit (ITC) for the CGST and
could be utilized only against the payment of
CGST. The same principle will be applicable to the
SGST.
Cross utilization of ITC between CGST and the
SGST should not be allowed.
CENTRAL GST AND STATE GST
26. A two-rate structure – a lower rate for necessary items and items
of basic importance and a standard rate for goods in general.
There will also be a special rate for precious metals and a list of
exempted items.
For taxation of services, there may be a single rate for both CGST
and SGST. The rate is expected around 14-16 per cent.
The EC has recommended for uniform threshold of annual gross
turnover of Rs.10 lakh for all goods and services for SGST
applicable for all states and Union Territories . Below this
threshold limit, State GST is not applicable. The threshold limit
for central GST may be kept at Rs.1.5 crore for goods and central
GST may be kept at higher levels for services.
PROPOSED RATE STRUCTURE
27. Centre would levy IGST which would be CGST
plus SGST on all inter-State transactions of
taxable goods and services with appropriate
provision for consignment or stock transfer of
goods and services.
The Task Force on GST is of the view that all
inter-State transactions in goods and services
should be effectively zero rated by adopting the
Modified Bank Model.
INTER-STATE TRANSACTIONS OF
GOODS AND SERVICES (IGST MODEL)
28. Charging tax
Getting Credit of GST
Ultimate Burden of Tax on Last Customer
Registration
Tax Period
Refunds
Exempted Goods and Services
Zero Rated Goods and Services
Tax Invoice
HOW GST WILL WORK ?
29. The taxation burden will be divided equitably between
manufacturing and services, through a lower tax rate by
increasing the tax base and minimizing exemptions.
It is expected to help build a transparent and corruption-free tax
administration.
It is estimated that India will gain $15 billion a year by
implementing the Goods and Services Tax as it would promote
exports, raise employment and boost growth.
This will benefit individuals as prices are likely to come down.
Lower prices will lead to more consumption, thereby helping
companies.
It will result in cost competitiveness of goods and services in
Global market.
BENEFITS OF GST
30. Integration of a large number of Central & State Taxes – multiplicity of
taxes and tax rates.
Power to levy and collect taxes – necessary constitutional amendments.
Operating a seamless input credit system – no cascading.
Efficacy and integration of broad based computerization across the
Nation.
Dispute settlement procedure and machinery.
Training of tax administrators and assesses.
Protecting and balancing the present and future revenues of the Centre
and the States.
Safeguarding the interests of less developed States with lower revenue
potential.
Treatment of exemption allowed in excise, VAT, etc.
CHALLENGES IN IMPLEMENTATION
OF GST
31. Implementing of GST will require a major revamp in the IT systems
and administrative infrastructure. Many states are not yet ready with
such a support system.
At present different tax rates prevail in the Indian states. The states
fear that the uniform SGST which is decided might be lower than their
existing rates thereby leading to losses.
Currently states do not charge separate service tax. They enjoy a
share in the Central Sales Tax kitty, but once GST comes into being,
this anomaly will stop to exist.
Since there will be no distinction between goods and services under
the GST regime, the states might benefit out of increased revenue on
account of services.
Almost all states, except for Maharashtra, are opposing GST.
OPPOSITION BY STATES
